Counting on a Rush to the Cloud

NetApp, the second largest provider of data storage equipment, likes its customers. It just wants to have fewer of them.

“Now about 2,000 customers are 80 percent of our business,” says Tom Georgens, NetApp’s chief executive. “Three years from now we’ll be a lot bigger, and that top 2,000 will be 90 percent of the business.”

In effect, Mr. Georgens is predicting a much faster move to cloud computing than most of his peers and industry analysts. Information technology, he says, “is where manufacturing was 30 years ago, when people said, ‘I can’t outsource my process, the quality is no good and I won’t own it.’” Of course, most manufacturers found they could manage to shed those assets, and that is what will happen with companies that think they have to own their own computers.

If businesses move to clouds run by others, that will lead to a consolidation of business; hence Mr. Georgens’s prediction of a bigger company with a smaller customer base. In particular, he is counting on the big telecom companies, which do a large, and little-remarked-upon, amount of cloud business. Other companies, like Amazon and Google, have their own proprietary storage systems.

It’s in NetApp’s interest to see the world this way. NetApp had revenue of $5.1 billion in its last fiscal year. The industry leader, EMC, had $17 billion in revenue. NetApp makes a lot of money, however, in the data center business, while EMC has a strong business in traditional storage as well as data centers. But that does not mean Mr. Georgens is wrong, either, and he is investing for this kind of market.

Last year NetApp paid $480 million for a company that enabled it to manage high-bandwidth data storage, the kind that comes from spy satellites, retail surveillance businesses and prison cameras. “It’s not so much a function of more cameras in the world, it’s the better resolution,” said the chief executive. More precise pictures mean more pixels, more pixels mean more data, and it all has to be stored someplace.

(One interesting side note: The cameras on drone aircraft in Afghanistan take such precise pictures that not all the data can quickly travel over the local Internet connections to analysts in the United States. The usual method is to store everything in a local cargo container full of receiving gear, computers and storage, then airlift it home when it’s full, swapping out another container to absorb more info from the drones.)

High-bandwidth performance will matter for things like analytics as well as video, and both are spreading into broader commercial use. It is happening with the aggregation of lots of small bits of data from phones, R.F.I.D. tags and sensors. The real challenge now, Mr. Georgens says, “is building for scale, clustering lots of people’s information and managing it like a big pool over a big geography.”

That is the kind of thing that Amazon and Google do now, but largely with their own systems. Mr. Georgens hopes the telecommunications companies will quickly persuade millions of companies worldwide to turn over their corporate data for similar treatment. There is skepticism of that happening soon, but remember how quickly things changed once the first few manufacturers started outsourcing.